Is Probate Necessary for a Donor-Advised Fund?

by Ball Morse Lowe on May 24, 2019

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A donor-advised fund, also known as a DAF, is a great way to donate to various charitable organizations without going through mountains of paperwork, all the while minimizing your taxes through deductions. It also offers tremendous flexibility for post-death giving, specifically if the DAF is funded while you’re still alive.

First of all, we know the title of this blog post is a question, and proper etiquette dictates we wait until we’re really in the meat of the blog to give you an answer, but we’re going to reject tradition and tell you right now: a donor-advised fund can avoid probate at the donor’s death. Therefore, a probate is not usually necessary for a DAF, so if that’s all you were looking for, we’re glad to have helped.

However, if you have more questions about donor-advised funds and probates and how they apply to one another (and how they don’t), we’ll get to that too.

Lifetime Giving

When we say a probate is not necessary for a donor-advised fund, this is specifically true if the donor-advised fund was already funded while the donor was alive. In this case, the money is already essentially gone since it’s in the fund. The only situation in which probate could apply is if the donor has not properly specified who should become the donor after they’re gone, but usually that is taken care of when you create the fund to begin with.

In many cases, the DAF will continue to operate and be used for charitable giving without issue after the donor’s death. However, it’s better to start the fund while alive for more than just the ease of its existence; a DAF is also an excellent way to give charitably while receiving tax deductions for the giving.

Lifetime funding also allows the donor to experience firsthand how a DAF works and, potentially, to give family members or others a chance to serve as advisors. Previewing a DAF allows the donor to test whether it makes sense to contribute additional funds during life or death.

Giving After Death

Including a DAF in your estate plan is a great way to make sure the funds you contribute will be dedicated to charitable purposes and managed by a public charity who has the resources and expertise to ensure the funds are used properly. You can also name family members or other loved ones to serve as current or successor advisors to help shape the future of your DAF, and create a legacy of charitable engagement.

However, this is the only time where a probate could be necessary for your DAF, since the funds are not actually in the fund yet and are thus named in your will. A probate could still be avoided by using a revocable trust and naming the DAF as a beneficiary of the trust. If the trust is properly funded during your lifetime, no probate would be necessary at your death.

Giving Property

Just like you can allocate property to your loved ones after your death, you can also choose to give property to your DAF, regardless of whether you funded it in life or death. These transfers of property qualify for the unlimited gift and estate tax charitable deduction, which may reduce or even eliminate estate taxes otherwise due after your death. A DAF can be a good alternative to forming a private foundation. You receive many of the same charitable benefits, without all of the legal and tax requirements that are involved with forming a foundation.

In Summary

There are many ways to fund a DAF, both before death and after, with money and/or property. If your funds and property are in the DAF before your passing, a probate is not often required or even necessary in most cases. A revocable trust can also be used to avoid probate. However, if you want to be sure your funds are safe and sound, it’s good to speak with a lawyer to ensure the proper language is on your will or estate plan.

For more information about allocating money for your donor-advised fund, contact us today! We’re always here to help. And if you’ve got questions about probates and how they work, download our free checklist today.

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Topics: Estate Planning, Probate, Estate Administation